Famed money manager Peter Lynch told us executives can sell their stock for any reason, but typically buy only for one: They think the price is going to go up!
Today I'm highlighting department store chain Sears Holdings , which saw chairman and CEO Eddie Lampert sink more than $13.5 million into its stock the other day. Now this wasn't an option grant, either, but purchases made on the open market just like you or I would do, so should we consider this a sign he thinks the retailer really is ready to jump higher?
Sears Holding snapshot
1-Year Stock Return
Return on Investment
Estimated 5-Year EPS Growth
Dividend and Yield
Edward Lampert, chairman & CEO
Average Purchase Price
CAPS Rating (out of 5)
Source: FinViz.com. TTM = trailing 12 months. N/A = not available; Sears doesn't pay a dividend.
Although following the lead of insiders can be profitable, I still recommend you do due diligence to determine whether this stock would make a good addition to your own portfolio. So this isn't a call to buy, but just the inside track on a company you might want to check out further.
It's no secret I haven't been a fan of the way Lampert has run Sears into the ground over the years since he merged it with Kmart. What initially seemed to be an opportune way to capitalize on the growing desire for discounted goods became a lesson in why hedge fund operators probably shouldn't run a retailer.
Seeking to maximize profits, Lampert neglected investing in his stores until it was way past too late, preferring instead to rely upon financial gimmicks like total return swaps and marketing stunts like "Christmas in July." And while he's calved off divisions to try to return value to shareholders, like the spinoffs of Orchard Supply and Sears Hometown & Outlet Stores, the company remains in free fall, falling further behind Wal-Mart and Target, and leaving pundits to wonder who will go under first, Sears or J.C. Penney.
Is it just coincidence that both of the latter chose similar people from outside the industry to head up their companies? Penney went with former Apple retail manager Ron Johnson, while Lampert chose someone who last headed up a telecom equipment maker.
Sears posted another adjusted loss as third quarter revenues slid 6% to $8.9 billion on comps that came in 1.6% lower at domestic Sears stores and off 4.8% at Kmart. The company did recently state fourth-quarter-to-date comps at Sears Domestic have increased 2.4%. So it will be interesting to see how the fourth quarter plays out for the company. Despite numerous attempts at a turnaround, the ship is listing even more sharply, and rather than take a new direction, Lampert will be taking the helm at CEO after former CEO Louis D'Ambrosio had to leave due to family health reasons.
It was hardly a secret that the position was a ceremonial one at best, as Lampert's long been the puppet master pulling the strings. Now that the curtain has been drawn back to publicly reveal the man at the controls, it's an all-or-nothing bet on whether he can do the job that's needed. But whatever you might say about him -- and I've been critical a long time -- you have to admire his willingness to put his money where his mouth is: $13 million is no small change. In the past, however, Lampert seemed only too willing to use shareholder money to buy back company stock at inflated prices.
Still, considering the track record, I'd be more inclined to bet on a Penney recovery or opt instead for rivals Kohl's or Macy's than to think Sears will make a move in the right direction.
Calling Harry Houdini!
The problem is, Lampert hasn't articulated a viable strategy for what he plans to do to change Sears' dowdy image. His magic hat of financial gimmickry no longer has any rabbits in it to pull out. Until we see some clarity from the man in charge, it seems like he's throwing good money after bad, and I wouldn't be one to follow him into the breach. But let me know in the comments box below whether you think Lampert has at least one more trick up his sleeve to engineer a recovery.
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Editor's note: A previous version of this article incorrectly stated that CEO Lou D'Ambrosio was ousted from his position. The Fool regrets the error. The article was also edited to clarify third-quarter revenue figures versus fourth-quarter projections.
The article Sears' Lampert Is Buying. Should You Sell? originally appeared on Fool.com.
Rich Duprey owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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